6. Projecting retirement income and the investment needs worksheet Estimating Future Retirement Needs U and Courtney have gathered the following information for you. They know that you are completing a personal finance course and that you understand how to complete a Projecting Retirement Income and Investment Needs worksheet. You will need the following data: Li will have worked at Target for his entire career and will have an annual pension amount of $16,875. Courtney will have worked at General Electric for her entire career and will have an annual pension amount of $12,500. Both Li and Courtney are 30 years old and plan to retire when they reach age 65. Their estimated level of annual current household expenditures is $65,000. They estimate that they will need 80% in retirement. They will receive $1,556 per month of Social Security income and no other sources of income (except pension). They talked with friends and believe that 8% is a realistic rate of return on their investments once they retire. . Based on their Internet research, they will use 6% as the average annual inflation rate for retirement calculations. After contacting their savings and loan, they found out a savings account is currently paying 5%. . Complete the worksheet provided. Note: 1) Every field must have a value (if your answer is zero, type "0"); 2) some values are repeated; and 3) round the average annual inflation rate and the expected rate of return on investments prior to retirement to three decimal places, and round everything else to two decimal places (or the nearest whole number if it does not let you enter decimals). Date: May 2015 Projecting Retirement Income and Investment Needs Name(s): Li and Courtney I. Estimated Household Expenditures in Retirement A. Approximate number of years to retirement B. Current level of annual household expenditures, excluding savings C. Estimated household expenses in retirement as a percentage of current expenses D. Estimated annual household expenditures in retirement (BxC) II. Estimated Income in Retirement Date: May 2015 www Projecting Retirement Income and Investment Needs Name(s): Li and Courtney 1. Estimated Household Expenditures in Retirement A. Approximate number of years to retirement B. Current level of annual household expenditures, excluding savings C. Estimated household expenses in retirement as a percentage of current expenses D. Estimated annual household expenditures in retirement (B x C) II. Estimated Income in Retirement E. Social Security, annual income F. Company/employer pension plans, annual amounts G. Other sources, annual amounts H. Total annual income (E + F + G) 1. Additional required income, or annual shortfall (D-H) III. Inflation Factor J. Expected average annual inflation rate over the period to retirement K. Inflation factor (a) Years to retirement (A) (b) Average annual inflation rate (3) L. Size of inflation-adjusted annual shortfall IV. Funding the Shortfall M. Anticipated return on assets held after retirement N. Amount of retirement fund required (your nest egg) 0. Expected rate of return on investments prior to retirement P. Compound interest factor (a) Years to retirement (A) (b) Expected rate of return on investments prior to retirement (0) Q. Annual savings required to fund retirement nest egg (N=P) You can use the following tables to identify the necessary future value interest factors 0. Expected rate of return on investments prior to retirement P. Compound interest factor (a) Years to retirement (A) (b) Expected rate of return on investments prior to retirement (0) Q. Annual savings required to fund retirement nest egg (N+P) You can use the following tables to identify the necessary future value interest factors. Periods 20 Interest Factors-Future Value 3.00% 5.00% 6.00% 8.00% 1.810 2.653 3.210 4.661 2.090 3.386 4.2906.848 2.420 4.322 5.740 10.062 2.810 5.516 7.690 14.785 3.260 7.040 10.280 21.724 9.00% 5.600 8.620 13.260 20.410 31.410 Interest Factors --Future Value of an Annuity Periods 3.00% 5.00% 6.00% 9.00% 9.00% 26.870 33.066 36.780 45.762 51.160 36.460 47.726 54.860 73.105 34.700 47.570 66,43879.060 113.282 136.300 60.460 90.318 111 430 172.314 215.700 75.400 120.797 154.760 259,052 337,870 6. Projecting retirement income and the investment needs worksheet Estimating Future Retirement Needs U and Courtney have gathered the following information for you. They know that you are completing a personal finance course and that you understand how to complete a Projecting Retirement Income and Investment Needs worksheet. You will need the following data: Li will have worked at Target for his entire career and will have an annual pension amount of $16,875. Courtney will have worked at General Electric for her entire career and will have an annual pension amount of $12,500. Both Li and Courtney are 30 years old and plan to retire when they reach age 65. Their estimated level of annual current household expenditures is $65,000. They estimate that they will need 80% in retirement. They will receive $1,556 per month of Social Security income and no other sources of income (except pension). They talked with friends and believe that 8% is a realistic rate of return on their investments once they retire. . Based on their Internet research, they will use 6% as the average annual inflation rate for retirement calculations. After contacting their savings and loan, they found out a savings account is currently paying 5%. . Complete the worksheet provided. Note: 1) Every field must have a value (if your answer is zero, type "0"); 2) some values are repeated; and 3) round the average annual inflation rate and the expected rate of return on investments prior to retirement to three decimal places, and round everything else to two decimal places (or the nearest whole number if it does not let you enter decimals). Date: May 2015 Projecting Retirement Income and Investment Needs Name(s): Li and Courtney I. Estimated Household Expenditures in Retirement A. Approximate number of years to retirement B. Current level of annual household expenditures, excluding savings C. Estimated household expenses in retirement as a percentage of current expenses D. Estimated annual household expenditures in retirement (BxC) II. Estimated Income in Retirement Date: May 2015 www Projecting Retirement Income and Investment Needs Name(s): Li and Courtney 1. Estimated Household Expenditures in Retirement A. Approximate number of years to retirement B. Current level of annual household expenditures, excluding savings C. Estimated household expenses in retirement as a percentage of current expenses D. Estimated annual household expenditures in retirement (B x C) II. Estimated Income in Retirement E. Social Security, annual income F. Company/employer pension plans, annual amounts G. Other sources, annual amounts H. Total annual income (E + F + G) 1. Additional required income, or annual shortfall (D-H) III. Inflation Factor J. Expected average annual inflation rate over the period to retirement K. Inflation factor (a) Years to retirement (A) (b) Average annual inflation rate (3) L. Size of inflation-adjusted annual shortfall IV. Funding the Shortfall M. Anticipated return on assets held after retirement N. Amount of retirement fund required (your nest egg) 0. Expected rate of return on investments prior to retirement P. Compound interest factor (a) Years to retirement (A) (b) Expected rate of return on investments prior to retirement (0) Q. Annual savings required to fund retirement nest egg (N=P) You can use the following tables to identify the necessary future value interest factors 0. Expected rate of return on investments prior to retirement P. Compound interest factor (a) Years to retirement (A) (b) Expected rate of return on investments prior to retirement (0) Q. Annual savings required to fund retirement nest egg (N+P) You can use the following tables to identify the necessary future value interest factors. Periods 20 Interest Factors-Future Value 3.00% 5.00% 6.00% 8.00% 1.810 2.653 3.210 4.661 2.090 3.386 4.2906.848 2.420 4.322 5.740 10.062 2.810 5.516 7.690 14.785 3.260 7.040 10.280 21.724 9.00% 5.600 8.620 13.260 20.410 31.410 Interest Factors --Future Value of an Annuity Periods 3.00% 5.00% 6.00% 9.00% 9.00% 26.870 33.066 36.780 45.762 51.160 36.460 47.726 54.860 73.105 34.700 47.570 66,43879.060 113.282 136.300 60.460 90.318 111 430 172.314 215.700 75.400 120.797 154.760 259,052 337,870